A Boring Name, But Important Changes to the Bankruptcy Code
Updated: Jun 21
Update: Signed into law June 21, 2022.
Late in the evening on June 8, 2022, the House of Representatives passed the Bankruptcy Threshold Adjustment and Technical Corrections Act. Having previously passed the Senate, it now awaits President Biden's signature before becoming law. You may read the text of the bill here.
You'll be forgiven if you weren't aware of this bill with the incredibly boring name (which I'll refer to as the "BTA" to save space). But if you're a bankruptcy professional or thinking of filing for bankruptcy (particularly Chapters 11 or 13), the BTA is very important and makes some significant and positive change to the law.
The first change affects Chapter 13 debtors. Currently (pre-BTA), a person cannot file for Chapter 13 if his or her secured debt exceeds $1,395,875, or their unsecured debt is more than $465,375. These limits tend to exclude small business debtors or those with large (or multiple) mortgages, judgments, etc. The BTA removes the artificial distinction between secured and unsecured debt, and instead sets a single debt limit, secured and unsecured, of $2,750,000. This number is indexed for inflation, and will be adjusted every three years.
The second change reinstates and makes permanent the increase to the Chapter 11 Small Business Reorganization Act ("SBRA") debt limits imposed during Covid. When the SBRA was passed in 2019, only individuals and businesses whose total debt was less than $2,725,625 could take advantage. This amount was temporarily increased to $7,500,000 in the CARES Act in 2020, and extended again in 2021. This higher number allowed more small businesses to take advantage of the SBRA's streamlined provisions. However, the extensions expired on March 27, 2022, and the debt limit dropped back to $2,725,625. BTA increases the debt limit back to $7,500,000, also indexed for inflation and adjusted every three years.
The other changes are more of a technical nature, and probably of interest only to bankruptcy professionals.
The BTA sunsets two years after enactment, so it will need to be revisited in 2024.